Monthly Economic ReportExecutive Summary( Dec 2019 )
(Provisional translation)
(Assessment of the current state of the Japanese economy)
The Japanese economy is recovering at a moderate pace, while weakness mainly among manufacturers is increasing further, as exports are continuing in a weak tone.
- Private consumption is picking up.
- Business investment is on the increase at a moderate pace, while weakness is seen in machinery investment.
- Exports are in a weak tone.
- Industrial production is in a weak tone further.
- Corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers.
- Employment situation is improving.
- Consumer prices are rising at a slower tempo recently.
Concerning short-term prospects, weakness remains for the time being, but the economy is expected to continue recovering, supported by the effects of the policies, while employment and income situation is improving. However, attention should be given to situations in overseas economies including the situations over trade issues, the prospect of the Chinese economy and the UK leaving the EU, the effects of fluctuations in the financial and capital markets, and the situations of the consumer sentiment after the consumption tax increase.
(Policy stance)
The Government will make its utmost efforts to ensure the economy overcomes deflation and achieve economic revitalization and fiscal consolidation simultaneously, in addition to make effort toward the reconstruction and revitalization from the Great East Japan Earthquake and the restoration and reconstruction from the 2016 Kumamoto Earthquake.
To this end, the Government will strengthen economic growth by boosting potential growth rate and expand virtuous cycle of growth and distribution based on the " Basic Policy on Economic and Fiscal Management and Reform 2019 ", the " Action Plan of the Growth Strategy " and so on. Moreover, in order to create a society in which everyone plays an active role and feels secure, the Government will establish the social security system for all generations. Furthermore, the Government will continue to pay careful attention to the economic trend after the consumption tax rate hike and implement the FY2019 budget including the temporal and special measures steadily.
The Government will steadily implement " Comprehensive Economic Measures to Create a Future with Security and Growth " (December 5th, Cabinet decision)to accelerate the restoration and reconstruction of the areas affected by the successive natural disasters, to overcome the downside risks originated from the overseas economies certainly, and to achieve sustainable economic growth led by private sector demand. The Government decided the FY2019 supplementary budget (December 13th, Cabinet decision) and, in light of " Basic Principles of FY2020 Budget Formulation " (December 5th, Cabinet Decision) and " Fiscal 2020 Economic Outlook and Basic Stance for Economic and Fiscal Management " (December 18th, Approval of Cabinet), decided the FY2020 budget (December 20th, Cabinet Decision).
The Government expects the Bank of Japan to achieve the price stability target of two percent in light of economic activity, prices and financial conditions.
Detailed explanations
1. Demand trends such as consumption and investment
Private consumption is picking up.
Private consumption is picking up. Real wage income of employees is increasing moderately. Consumer confidence shows movements of picking up.
The Synthetic Consumption Index, which synthesizes demand-side statistics (Family Income and Expenditure Survey, etc.) and supply-side statistics (Indices of Industrial Producer's Shipments, etc.), decreased by 2.6% in October from the previous month.
Concerning short-term prospects, consumption is expected to continue to pick up, supported by the improvement in the employment and income conditions. However, attention should be given to the effects of consumer confidence on consumption.
Business investment is on the increase at a moderate pace, while weakness is seen in machinery investment.
Business investment is on the increase at a moderate pace, while weakness is seen in machinery investment. The Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey, including software investment) show that business investment decreased in the July-September quarter of 2019 by 0.8% from the previous quarter. By industry, business investment increased for manufacturers by 1.6% from the previous quarter and decreased for non-manufacturers by 2.0%. Capital Goods Shipments and Imports, supply-side statistics, are almost flat, although weakness can be seen in some areas.
According to the Short-Term Economic Survey of Enterprises in Japan (BOJ Tankan) (December survey), planned business investment for all industries in fiscal year 2019 is expected to increase. In BOJ Tankan, firms' judgment on production capacity indicates their sense of shortage on the whole, although feelings of excess can be seen among manufacturers. The figures for Orders Received for Machinery, a leading indicator, appear to be pausing.
As for short-term prospects, business investment is expected to increase at a moderate pace, mainly reflecting a high level of corporate profits and actions in growth sectors and such. However, attention should be given to the effects of business confidence on investment.
Housing construction is in a weak tone.
Housing construction is in a weak tone. Construction of owned houses is flat. Construction of houses for rent is moderately decreasing. Construction of houses for sale is almost flat. Total number of sales of condominiums in the Tokyo metropolitan area is in a weak tone.
As for short-term prospects, housing construction is expected to remain in a weak tone for the time being.
Public investment shows steady performance.
Public investment shows steady performance. The amount of public construction completed in October increased by 0.7% from the previous month, the amount of contracted public works in November increased by 3.7% from the previous month, and the amount of public works orders received in October decreased by 3.7% from the previous month.
As for short-term prospects, public investment is expected to show steady performance due to the execution of related budgets.
Exports are in a weak tone. Imports are almost flat. The balance of goods and services is in approximate equilibrium.
Exports are in a weak tone. By region, exports to Asia are in a weak tone. Exports to the U.S are on a decline recently. Exports to EU are on a moderate decline recently. Exports to other regions are almost flat. As for short-term prospects, exports are expected to show weakness for the time being, due to the slow recovery of overseas economies, and afterwards exports are expected to pick up again, mainly reflecting the moderate recovery of overseas economies. However, attention should be given to situations in overseas economies including the situations over trade issues and the prospect of the Chinese economy.
Imports are almost flat. By region, imports from Asia and the U.S. are almost flat. Imports from EU are in a weak tone recently. As for short-term prospects, imports are expected to pick up.
The balance of goods and services is in approximate equilibrium.
For the goods in October, the export value has increased while the import value has decreased, so that the deficit has turned to surplus. The margin of the surplus in the balance of services has expanded.
2. Corporate activities and employment
Industrial production is in a weak tone further.
Industrial production is in a weak tone further. The Indices of Industrial Production decreased by 4.5% from the previous month in October. The Indices of Industrial Inventories increased by 1.3% from the previous month in October. The Survey of Production Forecast in Manufacturing expects a decrease of 1.5% in November, and an increase of 1.1% in December.
By industry, transport equipment is decreasing recently. Production machinery is almost flat. Electronic parts and devices are showing movements of picking up.
As for short-term prospects, since attention should be given to situations of the global economy, especially China, production is expected to show weakness for the time being, but afterwards production is expected to pick up.
Corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers. The number of corporate bankruptcies is almost flat.
Corporate profits are in a weak tone, mainly among manufacturers, although they remain at a high level. According to the Quarterly Financial Statements Statistics of Corporations by Industry (July-September survey), corporate profits during the July-September quarter of 2019 decreased by 5.3% from the previous year and decreased by 1.1% from the previous quarter. By industry, manufacturers saw a decrease of 15.1% in corporate profits from the previous year and non-manufacturers saw an increase of 0.5%. By size of company, large and medium-sized companies saw a decrease of 10.0% from the previous year, and small companies saw an increase of 8.7%. According to the BOJ Tankan (December survey), in fiscal year 2019, sales are expected to increase by 0.8% in the first half of the year, and are expected to decrease by 0.9% in the second half from the previous year. Current profits are expected to decrease by 5.0% in the first half and decrease by 10.3% in the second half from the previous year.
Firms' judgments on current business conditions continue increasing cautiousness, mainly among manufacturers. The BOJ Tankan (December survey) revealed that firms' judgment on current business conditions deteriorated for all enterprises in all industries. Firms' judgment on future business conditions, which indicates the business condition as of March, becomes more cautious than that on current business conditions. According to the corporate activity-related DI of the Economy Watchers Survey (November survey), current and prospective business conditions both fell.
The number of corporate bankruptcies is almost flat.
Employment situation is improving.
Employment situation is improving. Meanwhile, the sense of a labor shortage is at a high level. The total unemployment rate was 2.4% in October, the same level as the previous month. The labor force and the number of employed persons increased while the number of unemployed persons decreased.
The number of employees is almost flat recently. The number of new job offers is on a downward trend recently. Active job openings to applicants ratio is decreasing. Overtime hours worked in the manufacturing industry are decreasing recently.
As for the movement of wages, contractual cash earnings and the total amount of cash earnings are increasing moderately.
According to the BOJ Tankan (December survey),firms ' judgment on current employment conditions showed that the labor shortage remained severe, mainly among non-manufacturers.
As for short-term prospects, the employment situation is expected to improve.
3. Prices and the financial market
Producer prices are declining at a slower tempo recently. Consumer prices are rising at a slower tempo recently.
Producer prices are declining at a slower tempo recently on the basis of excluding the direct effects of the consumption tax increase.
Consumer prices, in terms of general, excluding fresh food and energy, are rising at a slower tempo recently on the basis of excluding the direct effects of the consumption tax increase and free early childhood education and nurseries.According to the Monthly Consumer Confidence Survey (multi-person households), the ratio of households which forecast a rise in prices was 82.6% in October, a decrease of 5.0 percentage points from the previous month.
As for short-term prospects, consumer prices (general, excluding fresh food and energy) are expected to start rising moderately on the basis of excluding the direct effects of the consumption tax increase and free early childhood education and nurseries.
As for stock prices, after rising from the 23,200-yen level to the 23,500-yen level, the Nikkei Stock Average declined to the 23,100-yen level, and thereafter rose to the 23,900-yen level. The yen against the U.S. dollar (inter-bank spot rate), after moving in the direction of depreciation from the 108-yen level to the 109-yen level, moved in the direction of appreciation to the 108-yen level, and thereafter moved in the direction of depreciation to the 109-yen level.